Nearly a quarter of all U.S. home mortgages are under water

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There have been a number of attempts to come up with a figure about how many U.S. home mortgages are under water -- in other words, the value of the home loan is more than the value of the house.

All estimates are bound to be wrong because no one has had the time or money to appraise every house in America and match it with the value of its mortgage plus any second mortgages. But The Wall Street Journalhas asked First American CoreLogic, a real estate research company, to give it a try. The report, which is available free online, says that that 23% of mortgages were under water at the end of the third quarter.

The data makes two salient points: 1) Negative equity and near negative equity mortgages account for nearly 28% of all residential properties with a mortgage nationwide, and 2) The rise in negative equity is closely tied to increases in pre-foreclosure activity.

A number of economists have voiced concerns that falling housing prices actually offer people a perverse incentive to turn their keys in to the bank and desert their homes. A homeowner who believes that his house will never be worth more than its mortgage foresees the day that he will sell his most important asset and have to write his lender a check for the difference between the value of his home and its mortgage.

The news about under water real estate is nearly as bad for banks as it is for homeowners. Default rates and foreclosures will almost certainly continue to rise. Banks will end up owning more and more properties that they are ill suited to sell. Many of those homes will be auctioned off at a fraction of what their values were two or three years ago.

And the housing death spiral will continue to circle downward.

Douglas A. McIntyre is an editor at 24/7 Wall St.

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